Microsoft Stock Price Surges by 50% in 2021

Microsoft stock remains a top bet for long-term investors given its wide economic moat and expanding profit margins.

| More on:

Shares of tech heavyweight Microsoft (NASDAQ:MSFT) continue to outpace the broader indices in 2021. MSFT stock is up almost 50% year to date compared to the S&P 500 gains of 24%. In fact, Microsoft has been a solid wealth creator for long-term investors and has gained a staggering 1,500% in the last 10 years.

But investors should understand that historical gains don’t guarantee future returns. Let’s see if MSFT stock is poised to keep deriving market-thumping gains to investors in 2022 and beyond.

The bull case for Microsoft stock

Microsoft is one of the largest companies in the world, valued at a market cap of US$2.47 trillion. In its most recent quarter that ended in September, MSFT reported sales of US$45.3 billion, with each of the business segments experiencing double-digit growth rates.

Microsoft’s intelligent cloud sales rose by 31% year over year to US$17 billion. Comparatively, its productivity & business processes, and personal computing segments saw revenue increase by 22% and 12%, respectively, to US$15 billion and US$13.3 billion. Microsoft managed to grow overall sales by 22% while adjusted earnings per share rose by 25% year over year in the fiscal first quarter of 2022.

Microsoft’s cloud business generates revenue from the intelligent cloud that includes its Azure cloud computing vertical. Its productivity & business processes include solutions such as Microsoft Office and LinkedIn. Finally, the personal computing business includes hardware sales such as tablets and Xbox.

In fiscal Q2 of 2022, Microsoft forecasts sales to grow by 17.4% year over year to US$50.5 billion, which will be a quarterly record for the company.

Further, Microsoft enjoys a wide economic moat and strong customer engagement rates. The Windows 10 operating system is currently active on more than a billion devices while the Office 365 suite of solutions is almost irreplaceable.

The tech behemoth is part of multiple growth verticals that include gaming and the public cloud. It also owns the largest social network platform for professionals in LinkedIn, which saw a 42% increase in top line in Q1. Azure also continues to outpace overall revenue growth, as sales grew by 48% year over year in the quarter ended in September.

What’s next for MSFT stock?

Enterprise-driven cloud spending is expected to grow at an annual rate of 18% through 2026, giving Microsoft enough room to keep driving top line higher in the future. Microsoft sales are forecast to rise by 17% to US$197 billion in fiscal 2022 and by 3.9% to US$224 billion in fiscal 2023. Comparatively, its adjusted earnings are estimated to rise at an annual rate of 16.5% in the next five years.

MSFT stock is valued at a forward price-to-2022-sales multiple of 12.7 and a price-to-earnings multiple of 37, which is expensive, making it vulnerable in a broader market selloff. But Microsoft remains a top bet for investors, as they are buying into a company that generates significant profits while leading several tech verticals.

Microsoft also returned close to US$11 billion to shareholders in Q2 via share buybacks and dividends. The company increased quarterly dividends by 11% year over year to US$0.62 per share, indicating a forward yield of 0.75%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Microsoft.

More on Tech Stocks

Happy shoppers look at a cellphone.
Tech Stocks

So You Own Shopify Stock: Is it Still a Good Investment?

Shopify (TSX:SHOP) stock has had a run, but there's still room to the upside.

Read more »

A person uses and AI chat bot
Tech Stocks

AI Where No One’s Looking: Seize Growth in These Canadian Stocks Before the Market Catches Up

Beyond flashy headlines about generative AI, these two Canadian AI stocks could deliver strong returns for investors who are willing…

Read more »

Data center servers IT workers
Tech Stocks

Better Buy: Shopify Stock or Constellation Software?

Let's dive into whether Shopify (TSX:SHOP) or Constellation Software (TSX:CSU) are the better options for growth investors in this current…

Read more »

nvidia headquarters with nvidia sign in front
Tech Stocks

Nvidia Just Delivered a Beat-and-Raise Quarter. There’s 1 Red Flag Investors Shouldn’t Ignore.

The chipmaker continued to benefit from robust demand for artificial intelligence (AI). But can it last?

Read more »

GettyImages-1473086836
Tech Stocks

Why Super Micro Computer Stock Is Soaring Today

The volatile stock is getting a boost from Nvidia.

Read more »

Snowflake logo in snowflake office on wall_snowflake-1
Tech Stocks

Here’s Why Snowflake Stock Skyrocketed Today

Shares of the data company are up 32% for the day.

Read more »

man touching magnifying glass button on floating search bar internet google search engine
Tech Stocks

Why Alphabet Stock Was Sliding Today

The parent company of Google is facing heat from U.S. regulators.

Read more »

chart reflected in eyeglass lenses
Tech Stocks

Top Canadian AI Stocks to Watch in 2025

Celestica (TSX:CLS) stock and another Canadian AI stock are worth watching closely this holiday season.

Read more »